Q4 2025 Wealth Management Insights

Economic growth in the 4th quarter appears to have slowed compared to the robust 4.3% annualized growth rate reported for the 3rd quarter. Much of that growth is tied to the government shutdown as the Congressional Budget Office projects that it alone subtracted one to two percentage points off of 4th quarter growth. Current estimates from the two Federal Reserve models project growth between 2 and 3%. The Atlanta Federal Reserve model is projecting 3.0% growth while the New York Federal Reserve model is projecting 2.1% growth.

What we do know is that this economic cycle continues to show an economy that is bifurcated. The new catch phrase being used by economists is a K shaped expansion. What private data and anecdotal evidence continue to show is that the upper income consumer and large businesses are prospering while lower income consumers and small businesses are struggling. Upper income consumers have benefited from the continued growth of their non-retirement investment portfolios outpacing inflation and big businesses have been better able to adapt to changing monetary and fiscal policy compared to small businesses.

Consumer spending appears to have remained solid during the holiday season as Mastercard’s Spending Pulse report shows holiday retail sales increasing 3.9% from November 1 through December 21. The one message from the report is that buyers were being selective and actively seeking bargains. The “K” shape was evident as “main street” retailers offered sales while “high end” retails found no need to offer sales.

Corporate spending continues to be powered by the large technology companies and their spending on Artificial Intelligence (AI) and data centers. The strength in spending from these large companies is offsetting weakness in the manufacturing sector. Based on the private sector data from S&P and ISM, manufacturing orders slowed or declined during the quarter. The official durable goods orders from the Census Bureau also showed a decline in October.

Government spending is where the greatest weakness was seen. This was a direct result of the government shutdown as a drop in government outlays occurred. Some of this will be unwound in the 1st quarter.

Despite the difficulty of fully assessing economic growth, the private data that has been available still points to positive growth for the quarter. The most important point to emphasize is how bifurcated, or “K” shaped, the growth remains. Your own experience may differ from what the macro data is showing. If you are planning for 2026, you are probably best served to believe what you are experiencing versus what the media may be reporting.